11 OCTOBER 2006 PARIS MOTOR SHOW 2006 FRANCE Do Smaller Cars Have a Bigger Future in the U.S.? Rebecca A. Lindland Associate Director The Americas Copyright 2006 Global Insight, Inc.
Executive Summary With rising fuel prices, small cars are becoming a topic of interest, again, in the U.S. While sales of smaller vehicles are growing, many Americans will be hesitant to give up their large vehicles. This will limit the growth of smaller vehicle sales even with continued high fuel prices. Vehicle Sales 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 U.S. Small Vehicle Market ENTRY SUV ENTRY PREMIUM CUV ENTRY CUV ENTRY STW SMALL SPECIALTY NEAR PREMIUM COMPACT 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 SUBCOMPACT Copyright 2006 Global Insight, Inc. 1
What are Small Cars in the U.S.? Vehicles considered by American buyers to be small are not all that small by international standards: Subcompact cars (B) e.g. Toyota Yaris Compact cars (C) e.g. Ford Focus Near premium cars (C) e.g. Audi A3 (only 5-door in U.S.) Small specialty cars e.g. Hyundai Tiburon Entry STWs e.g. Chrysler PT Cruiser Entry CUVs e.g. Honda CR-V Entry premium CUVs e.g. Land Rover LR2 Entry SUVs e.g. Jeep Wrangler Copyright 2006 Global Insight, Inc. 2
What are Small Cars in the U.S.? At present, there are no A-Segment cars available in the U.S. The Smart fortwo will be the first We do not anticipate that the A-Segment will become very popular in the U.S. The MINI is successful despite its size, not because of its size Copyright 2006 Global Insight, Inc. 3
For Premium Brands, C-Size is the Lower Limit In the U.S. market, small often equates to cheap, thus historically, the premium brands have seldom played below C/D-size BMW 3-Series Mercedes C-Class Audi A4 Recently, however, the premiums have been moving down to C-size, to capture younger buyers: Volvo S40/V50 Audi A3 BMW 1-Series (not yet launched in U.S.) BMW has successfully introduced the Mini a Premium B-Car And, in the U.S., light trucks comprise an increasingly significant part of the premium sector Copyright 2006 Global Insight, Inc. 4
Return of the B-Segment (Subcompact) The B-Segment initially came to the U.S. during the 1970s energy crisis era: Renault 5 (LeCar) Ford Fiesta Toyota Starlet Honda Civic CVCC But, by the late 1990s, the B-Cars had all but disappeared as consumers flocked to light trucks Around MY2000-04, B-Cars began to re-appear on the market: Toyota Echo Chevrolet Aveo Scion xa Copyright 2006 Global Insight, Inc. 5
Return of the B-Segment (Subcompact) Many major manufacturers are introducing B-Cars in the U.S.: Toyota Yaris Honda Fit Nissan Versa Three upcoming B-Size vehicles from Ford Upcoming Saturn Corsa Will there be a demand for so many very small cars? Copyright 2006 Global Insight, Inc. 6
Why Subcompacts Now? By MY2009, most major OEMs will be offering at least one subcompact, or B-size car in the U.S. market. This is initially surprising given the historically poor sales performance of these vehicles in the U.S. In the past, consumers have shunned B-sized cars because: Consumers didn t really care that much about fuel economy. B-size cars are perceived as too small in a sea of pickups and SUVs. Similarly priced used cars offer more value and prestige. But today, OEMs believe that demand for B-size cars will increase significantly due to: Rising fuel prices. The emergence of Generation Y. Copyright 2006 Global Insight, Inc. 7
The Fuel Price Effect Many suggest that rising fuel prices will spur demand for B-size cars. But, historically, consumers have demonstrated that even with high fuel prices, few people are willing to drive B-size cars. If gasoline were to stabilize at $3.00 per gallon, some consumers will shift downward in size (by one size segment), but likely not down to B size. Copyright 2006 Global Insight, Inc. 8
The Gen Y Effect Historically the auto industry has made the assumption that young entry level buyers want small cars. Usually, this assumption is far from true. With Generation Y, the industry needs to be particularly careful. Generation Y is an in your face, look at me group that aspires to Hummers, Escalades, and Navigators. And some B-size cars lack the attitude demanded by Generation Y. Cute B-sized cars that may have been successful in other markets have no guarantee of success here in the U.S. But, some of the upcoming B-Cars have real attitude and could possibly connect with Generation Y. Copyright 2006 Global Insight, Inc. 9
Subcompact Sales History and Forecast 900 800 VOLUME (IN THOUSANDS) 700 600 500 400 300 200 100 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Copyright 2006 Global Insight, Inc. 10
Subcompact Car 600 500 400 300 3.0% 2.5% 2.0% 1.5% Many major manufacturers are jumping on the subcompact bandwagon, if they are not already present 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CHEVROLET DODGE FORD HONDA HYUNDAI KIA NISSAN SCION SMART SUZUKI TOYOTA TIV 1.0% 0.5% 0.0% Typically not an aspirational vehicle, new, stylish entries like the Honda Fit, Nissan Versa, and Toyota Yaris may change people s perceptions When fuel is cheap (2002-3), Americans shunned subcompacts But with relatively higher fuel costs forecast out to 2010 and with a lot of model activity, subcompact penetration will rise New models make this segment more appealing First time buyers (Gen Y) and low income retirees have historically bought subcompacts But sustained high fuel prices could make this segment appeal to low income sectors of other generations as well Copyright 2006 Global Insight, Inc. 11
Compact Car For the majority of American consumers, a C-Size or compact car is the smallest vehicle they will consider. C-Cars comprise three segments in the U.S market: Compact Cars with Value brands (Dodge Caliber) Near Premium Cars with premium brands (Audi A3) Small Specialty Cars (Hyundai Tiburon) Copyright 2006 Global Insight, Inc. 12
Compact Car 2250 2000 1750 1500 1250 1000 750 500 250 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GM FORD DCX GEELY HONDA HYUNDAI KIA MAZDA MITSUBISHI NISSAN TOYOTA SUBARU SUZUKI VOLKSWAGEN TIV While relatively high forecast fuel prices will give compacts a boost, it will be more than offset by the exodus to CUVs and STWs Model activity is far less than the frenzy at the subcompact level The Dodge Caliber has nicely replaced the Neon in 2006 12.5% 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% Honda s 2006 Civic was the first of a wave of significant new models in this segment MY2007 brings the new Nissan Sentra and Hyundai Elantra, while MY2009 brings the next Toyota Corolla (early 2008) The Ford Focus receives a moderate freshening for MY2008, followed by an all new version in MY2011 Many compact buyers are moving to more versatile CUVs and STWs But Gen X and Gen Y females are likely to continue to buy compact cars in large numbers Copyright 2006 Global Insight, Inc. 13
Near Premium Car 120 100 80 60 40 1.0% 0.8% 0.6% 0.4% The segment leader, the Acura TSX, was new for MY2005. The next generation arrives for MY2009 Volvo s S40/V50 was new for MY2005. The next generation arrives for MY2011 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ACURA ALFA ROMEO AUDI BMW INFINITI MAZDA SAAB VOLVO TIV 0.2% 0.0% Audi s A3 entered the segment for MY2006 Saab s 9-2X, derived from the Subaru Impreza ends production this year These vehicles are little more than C size cars with premium brands OEMs are not flocking here because this segment carries lower profitability than the regular premium segments The return of Alfa Romeo and the introduction of the BMW 1-Series will help boost long-term volume This segment presents an easy first step toward premium for upwardly mobile Gen Y buyers But, status conscious Gen Y s won t stay here long before moving to real premium vehicles Copyright 2006 Global Insight, Inc. 14
Small Specialty Car 350 300 250 200 150 100 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GM CHRYSLER ACURA HONDA HYUNDAI KIA MAZDA MINI MITSUBISHI TOYOTA SCION VOLKSWAGEN TIV 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% The Saturn Sky Roadster and new MINI arrive for MY2007, then the Hyundai Tiburon and a new Kia entry for MY2008 Acura has canceled the RSX, though VW revives the Scirocco nameplate for MY08 and GM brings back a Sting Ray for MY09 The PT Cruiser Cabrio is retired in CY2009 replaced with an Entry CUV This is a style-driven segment, heavily impacted by new model introductions The shelf life of products in this segment is short, making this a difficult place to make money There are a lot of entries, but volume still peaks at just 300,000 The small specialty segment has been contracting since the mid 1990s when the last of the Baby Boomers left the single life stage Single Gen X and Y prefer sedans and trucks over small specialty cars Empty nesting Baby Boomers should love the new roadsters Copyright 2006 Global Insight, Inc. 15
Small Trucks But in the U.S. where light trucks make up about half the market, small trucks must also be considered Small trucks come in four varieties: Entry STW (Sport Touring Wagon) Entry CUV (Crossover Utility Vehicle) Entry Premium CUV Entry SUV (Sport Utility Vehicle) Copyright 2006 Global Insight, Inc. 16
Definitions of Utility Vehicles Offered in the U.S. Recognizing the wide variety of utility type vehicles on the market, Global Insight has divided the utility market into three primary segments: Sport Utility Vehicles (SUVs) Crossover Utility Vehicles (CUVs) Sport Touring Wagons (STWs) Copyright 2006 Global Insight, Inc. 17
SUV What Is It? An SUV is a Sport Utility Vehicle Generally built using body on frame truck platforms Heavy duty construction yields high curb weights Most have low-gear ratios for off road performance Ride is firm and rugged Rear-wheel-drive with 4x4 as an option SUVs tend to have high towing capacity Copyright 2006 Global Insight, Inc. 18
Why Are SUVs Popular? SUVs are a nearly perfect fit with Baby Boomer me first values: Command seating position Go anywhere, do anything capability Get out of my way look in your rear view mirror Bigger than you for safety Because of this perfect fit, SUV sales will be more robust than some are forecasting, although they will decline Copyright 2006 Global Insight, Inc. 19
CUV What Is It? A CUV is a Crossover Utility Vehicle To most consumers, CUVs and SUVs are the same thing But, CUVs are built from car, rather than light truck platforms CUVs trade off-road ruggedness for improved fuel economy, ride, handling and ergonomics CUVs are more truck-like in image than STWs Copyright 2006 Global Insight, Inc. 20
Why Are CUVs Popular? Well-executed CUVs provide consumers with many of the benefits of an SUV, but minus the disadvantages: Better fuel economy Better chassis dynamics Better ergonomics The most successful CUVs are indistinguishable visually from SUVs: Ford Escape Chevrolet Equinox Honda Pilot Even Baby Boomers will make the switch to well executed CUVs, thinking they are continuing to buy an SUV Copyright 2006 Global Insight, Inc. 21
STW What Is It? The sport touring wagon (STW) is the modern interpretation of the classic station wagon But, STWs differ from station wagons in several ways: Sportier image Higher roofline for command seating position Shorter rear overhang Available AWD (in most cases) STWs are more car-like than CUVs Copyright 2006 Global Insight, Inc. 22
Why Are STWs Popular? STWs are the classic station wagon brought up to date STWs provide the comfort, dynamics, and economy of cars, with some of the functionality and style of a CUV Ultimately, the STW could become the mommy mobile of Generation Y: Generation Y will not want the minivans their parents used when they were kids Properly executed, the STW can provide Generation Y with a kid hauler tailored to their unique values Entry STWs appear poised to substitute for compact sedans for other generations as well Consumers used to the versatility of SUVs and minivans will appreciate the enhanced usability of an STW vs. a small coupe or sedan Copyright 2006 Global Insight, Inc. 23
Entry STW 350 300 250 200 150 100 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CHEVROLET CHRYSLER FORD JEEP KIA MAZDA SUBARU TIV This is the perfect functional alternative to the stodgy compact car DCX and GM will be the segment leaders with the PT Cruiser and Compass for the Chrysler Group and the HHR for GM Chrysler is putting a lot of stake in this segment, more than any other carmaker 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% MY2006 saw the introduction of the Chevy HHR The Jeep Compass arrives for MY2007 followed by the Kia Carens in MY2008 The next generation Subaru Outback arrives for MY2010 PT Cruiser is cancelled after MY2008 and replaced with an entry CUV Growth in this segment will likely be driven by both Gen Y and retired folks seeking a versatile yet economical vehicle Design needs to be aggressive, though, to appeal to Gen Y Copyright 2006 Global Insight, Inc. 24
Entry CUV 1200 1000 800 600 400 200 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GM DCX FORD HONDA HYUNDAI KIA MAZDA MITSUBISHI NISSAN SUBARU TOYOTA VOLKSWAGEN TIV The fastest growing segment in the truck market, eventually becomes second largest segment behind full size pickups Overall functionality of models makes it an irresistible proposition Nearly doubles in size from 2002 to 2011 Hybrids are not selling very well 7% 6% 5% 4% 3% 2% 1% 0% GM s Theta trio (Equinox/Torrent/Vue) pushed the OEM to top volume in 2005, ahead of Ford s Escape/Mariner and Honda CR-V All new Mitsubishi Outlander debuts for MY07, but could get lost amongst the redesigned Toyota RAV-4 and Honda CR-V The all-new Santa Fe moved to Mid CUV with Tucson joining segment Chrysler jumps in with Jeep Patriot The Honda Element and segment leading Ford Escape will be updated for MY 08 VW finally joins in MY09 with Tiguan (we don t know what it means either) Generations X and Y are driving strong Entry Utility growth. Rising fuel prices will also drive some Baby Boomers down from SUV s and larger CUV s Melting pot of demographics. Copyright 2006 Global Insight, Inc. 25
Entry Premium CUV 300 250 200 150 100 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ACURA ALFA ROMEO AUDI BMW CADILLAC INFINITI JAGUAR LAND ROVER LEXUS MERCEDES-BENZ SAAB VOLVO TIV 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% Higher gas prices and a strong influx of new models will do nothing but spur demand for the segment European OEMs have had the field to themselves, but now the Acura RDX comes on board and is expected to do very well In early 2006, the X3 was the only model on sale in this segment But by late 2006, the Acura RDX and Land Rover LR2 became available MY2008 brings the Infiniti CX-Series MY2009 has a host of debuts: Mercedes GLK, Audi Q5, and Volvo XC50. For MY2010, GM rolls out the Saab 9-4X and Cadillac BRX, and Jaguar gets the X-Cross (if all goes well) This segment will be driven by upwardly mobile Gen X and Gen Y buyers who can t wait for premium vehicles These vehicles work equally well for singles, marrieds and marrieds with small children Provides Gen X with understated yet elegant wheels Copyright 2006 Global Insight, Inc. 26
Entry SUV 600 3.5% 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 CHEVROLET DODGE JEEP KIA MITSUBISHI NISSAN SUZUKI TOYOTA TIV 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Segment leaders are the Jeep Liberty, Nissan Xterra and Jeep Wrangler MY2007 brings the Toyota FJ, Dodge Nitro and next generation Jeep Wrangler (including 4-door) The next generation Jeep Liberty and Kia Sorento arrive for MY2008 The segment has experienced a loss of close to 25% in the last four years with everyone shifting to CUVs DCX is still betting heavily on the segment and will introduce a revamped Wrangler and the Dodge Nitro Growth in this segment will likely be driven by Gen Y males, and off-roading enthusiasts of all ages CUVs have the preferred attributes for most other consumers Copyright 2006 Global Insight, Inc. 27
11 OCTOBER 2006 PARIS MOTOR SHOW 2006 FRANCE Merci! Rebecca Lindland Associate Director, North America rebecca.lindland@globalinsight.com Visit our Web site at www.globalinsight.com Copyright 2006 Global Insight, Inc.